Loan portfolio diversification and bank returns: Do business models and market power matter?

The paper examines how loan portfolio diversification drives bank returns, mainly focusing on the conditioning roles of business models and market power in this nexus. We employ a sample Vietnamese commercial banks from 2008 to 2019 perform regressions dynamic panel with two-step system generalized method moments (GMM) estimator. find that increased sectoral reduces but not all are equally affected. Banks adopted model towards non-interest activities hurt less diversification, may mitigate detrimental effects returns. When such asymmetric sizeable, neglecting them could miscalculate choice diversification. Our findings robust rich set return indicators alternative measures based Herfindahl-Hirschman (HHI)/Shannon Entropy (SE) indexes different exposure profiles. Thus, both regulators should take disadvantage into account when encouraging/pursuing diversified strategy, which must be accompanied by crucial caveat damage is most pronounced for lower shares income power.